Earned Value Analysis or Earned Value Management is considered to be one of the more difficult concepts of Project Management. Many practicing professionals find the earned value terms and definitions confounding. They dread the formulas and calculations.

I believe, Earned Value Analysis concept is lot simpler than it is made out to be. After reading this article, you too will find it easy. I will explain earned value terms, definitions, formulas, and calculations using a small example.

Earned Value Analysis and PMP

Do you know why most professionals find Earned Value confusing?

I believe PMP prep books and training programs should be blamed for the state of confusion. They have just over-complicated an easy concept. They stress more on formulas and calculations without explaining the basic concepts.

Let me be honest here. My first experience with Earned Value Analysis was on similar lines. I did not find the concept intuitive during the initial days of my PMP exam prep.

Even though my first experience was not pleasant, I persevered. I re-read the concepts and understood with the help of examples. After, I understood the topic, Earned Value Management seemed like a walk in the park.

Earned Value Definition

Do you understand the language of money?

Well! Who doesn’t?

The basic principle of Earned Value (EV) is based on the fact that everyone understands the language of money.

In simple words we can say that, Earned Value is the monetary value of the completed work.

For example, if I have made 5 widgets and each widget is worth $10 then I can say that my earned value is $50 (5 X $10).

In Earned Value Analysis (EVA) everything is measured and reported as money or monetary equivalent. The project team determines an equivalence between Scope, Schedule, Cost to do this. EVA provides a singular view of Scope, Schedule and Cost.

Let us understand equivalence by the following example.

Earned Value Analysis Example

In this article, I have explained EVA by using a small example. In another post, I have provided its explanation in simple and easy language. You should read both these articles to understand the concept completely.

Let us look at the example. Let us consider that we have to complete a small project. We need to build wooden tables.

Project Plan

The project team needs to build 80 wooden tables in 5 days. It is estimated that each table will cost 1000 units of money.

The following figure provides initial plan for the project. It also provides equivalence between Project Scope, Schedule, and Cost.

Project Scope

Build 80 tables

Project Schedule Estimate

5 Days

Cost Estimate per Table

1000 units of money

Project Cost Estimate

80000 units of money

The following figure provides detailed Schedule and Cost estimates at the start of the project.

Day 1

Day 2

Day 3

Day 4

Day 5

Tables Planned to be Built

10

13

17

20

20

Estimated Cost for the Day

10000

13000

17000

20000

20000

Estimated Cumulative Cost

10000

23000

40000

60000

80000

Project Tracking

Let us assume that, the project was started 3 days ago and we are evaluating the performance at the end of Day 3.

The following figure provides status at the end of Day 3. There are two new rows that depict the progress of the project. These are shown in light orange background.

Day 1

Day 2

Day 3

Day 4

Day 5

Tables Planned to be Built

10

13

17

20

20

Estimated Cost for the Day

10000

13000

17000

20000

20000

Estimated Cumulative Cost

10000

23000

40000

60000

80000

Actual Cost for the Day

8000

12000

16000

Actual Cumulative Cost

8000

20000

36000

Cumulative Work Scheduled at the end of Day 3 = 40 Tables

EVA considers monetary value of the work. So, we can re-write the above statement as

Cumulative Work Scheduled at the end of Day 3 = 40 Tables worth 40000 units of money

Cumulative Actual Cost at the end of Day 3 = 36000 units of money

Is the Project Team making good progress?

Some of you might say that project has saved cost. The team has spent 36000 units of money against an estimate of 40000 units.

Some others might say that project is behind. The team has build only 36 tables instead of planned 40.

Both are incorrect interpretation of the given data. The data, itself, is incomplete.

Do you know how much work has been completed? How many tables were built at the end of Day 3?

No.

We need another parameter to determine the progress of the project. Let us introduce some more data in the above figure.

Introducing Earned Value

Day 1

Day 2

Day 3

Day 4

Day 5

Tables Planned to be Built

10

13

17

20

20

Estimated Cost for the Day

10000

13000

17000

20000

20000

Estimated Cumulative Cost

10000

23000

40000

60000

80000

Tables Actually Built

8

12

15

Value of Tables Actually Built

8000

12000

15000

Cumulative Value of Tables Actually Built

8000

20000

35000

Actual Cost for the Day

8000

12000

16000

Actual Cumulative Cost

8000

20000

36000

You would have noticed that only 35 tables were built at the end of the day 3.

Cumulative Work Scheduled at the end of Day 3 = 40 Tables worth 40000 units of money

Cumulative Actual Cost at the end of Day 3 = 36000 units of money

Cumulative Work Performed at the end of Day 3 = 35 tables worth 35000 units of money at the Budgeted Cost

Let us re-write these terms again

Budgeted Cost of Work Scheduled (BCWS) = 40000

Budgeted Cost of Work Performed (BCWP) = 35000

Actual Cost of Work Performed (ACWP) = 36000

These are the 3 basic terms/values of EVA. The modern names for these terms are Planned Value (PV), Earned Value (EV) and Actual Cost (AC) respectively.

Earned Value Analysis Formulas

We can interpret a few things by analyzing the above data.

1. The project is behind schedule.

The Project Team had planned to build 40 tables at the end of Day 3.

They could only build 35 tables.

In EVA parlance we can say that Project Team planned to complete the work that was worth 40000 units of money.

They completed the work that was worth 35000 units of money.

2. The project is Over Budget.

The Project Team build 35 tables at the end of Day 3.

In EVA parlance we can say that they completed the work that was worth 35000 units of money.

The Project Team spent 36000 units of money to build 35 tables.

In EVA parlance we can say that 36000 units of money was spent for doing the work that was worth 35000 units of money.

PMP Exam Formulas

I have also compiled a PMP Formulas Cheat Sheet. It contains 45 formulas and 57 abbrviations. It will help you in your exam prep. You can freely download the PMP Formulas Sheet for your studies. It is the best and most comprehensive cheat sheet based on the PMBOK Guide 6th edition.

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Praveen Malik, PMP

​Praveen Malik ​is a certified Project Management Professional (PMP®) with a rich 23+ years of experience. He is a leading Project Management Instructor, Coach and ​Advisor. He ​has successfully trained thousands of aspirants for the PM certification exams.

Leave a reply:

And that couldn’t be more accurate right here. Having said that, allow me say to you exactly what did work. Your article (parts of it) is certainly rather powerful which is possibly the reason why I am taking an effort to comment.

Leave a reply:

There is a little error here. You considered figures of 3rd day’s work only. But what should be considered is work done till end of day3., ie work completed and cost incurred on day1+day2+day3. In this case , BCWS (PV) = 10+13+17=40 tables; 40000 units of moneyBCWP(EV) = 8+13+15=36 tables; 36000 units of moneyACWP (AC) = 8+12+16=36000 units of work